Cheney is chairman of President George W. Bush's task force on energy
policy. Before assuming the vice presidency, Cheney was chief executive
officer and chairman of Dallas-based Halliburton Company, which bills
itself as the world's largest services company for the oil industry.
Cheney believes that the energy markets should be deregulated, and that
the federal government's regulatory obligations should be diminished as
much as possible. FRONTLINE interviewed Cheney on May 4, 2001.

... If I'm correct, you're the first person who is the chief executive
officer of a major corporation--in this case, an energy corporation--to then
have national office. What kind of perspective do you [have] in terms of
what's going on now?

... I spent 25 years in government, then went out in private sector, and ran
Halliburton for five years. ... Halliburton did not own any assets in gas or
anything like that. We were hired by those who owned the assets to help them
refine and produce those assets. I think it's valuable experience, especially
because of the technology that's available now in the energy business. ...
As we go around the country, people say, "Well, of course the Republican
Party has gotten tens of millions of dollars in contributions from this energy
sector." You're an energy executive, or former executive. The president was in
the energy business. To quote [California Governor Gray] Davis, "They're doing
what the energy industry wants them to do." How do you confront that?

First of all, the energy industry is rarely united on anything. It's a very
competitive business. A company, for example, that's heavily invested in oil
will have a different perspective than one that's heavily invested in gas--a
different regulatory structure, different pricing structure, different
commodity. [And it] will be different from one that's heavily involved in the
electric utility business. "Energy" is a nice sort of broad phrase to wrap it
all around. But the fact of the matter is, if you look at the way the place
actually works, it is an extraordinarily complex competitive business. Lots of
times, it's hard to find any two people who agree on anything.
We've run into the battle between Enron, let's say, and Southern, over
various issues. ... How do you handle that from your position?

I don't worry that much about what Southern thinks or what Enron thinks. My job
and responsibility now as vice president, as chairman of the president's energy
task force--we've been at it a little over 100 days, so obviously we're in the
early phases of it--is to try to make good public policy and to make
recommendations to the president based on what makes sense for the country.
Sometimes a particular energy company will like it, and sometimes they won't
like it.
And they have access. ...

Everybody does. The staff of our energy task force has spent time with folks
from various parts of the industry. We've also spent time with the
environmentalists. I spent a lot of time with the members of Congress,
listening to them, listening to both parties on energy. So the idea that
somehow only the energy industry has access just simply isn't true.
But you understand that people would have this idea that it's "them" who are
setting the rates. It's them--people with power, the CEOs, the people who
contributed to your campaigns, the people who mention your name in interviews
that we do because they've gone hunting with you or fishing with you.

Yes, but that's the conspiracy theory of public policy. It's irresponsible.
It's not true. Some politicians promote it because it's easier than dealing
with substance. ... I went out and got elected with the president of the United
States. We got on the ticket. The American people got to choose and they
picked us, in a very close election, obviously. But now our job is to govern.
I have no further financial interest. I have totally divested myself of all of
my outside financial interests--at considerable cost to myself--in order to be
able to come in and function in this capacity and be free of any allegations of
conflicts of any kind. ...

That doesn't mean they're not controversial issues; they are. But the last
administration wouldn't even touch them because they are tough issues, and we
need to take them on. We think this is a very important area for us to
address, and frankly, I think we'd benefit from the fact that some of us know a
little bit about the business.
There is the perception that the last administration wanted to defend the
environment, say, developing energy resources, and that your administration is
willing to sacrifice the environment, if you will, for the profitability of
these companies.

That's a false choice, and it's always presented that way by those who are
opposed to doing anything. The fact of the matter is that we can do both; we
must do both. We've been doing both for a long time. Even if it has
significantly expanded our consumption of fossil fuels of recent years, we've
also substantially reduced the amount of pollutants put into the atmosphere. A
lot of the new technologies available will, on the one hand, preserve water and
not despoil water, and at the same time, go develop the resources that are
underneath that water. So to say you have to choose one or the other, that
you're for the environment or you're for energy, is just wrong. ...
[Enron CEO] Jeff Skilling said that he believes--and I'd like your
reaction--that the marketplace should set prices, and that, in his opinion, we
should repeal the "just and reasonable rates" provisions of the Federal Power
Act. Do you agree with that?

I haven't looked at the Federal Power Act. Generally, a market-oriented
philosophy is one I believe very much in, as does the president. ... It's not
perfect. But generally we have the world's finest economy, in part because of
our market mechanism, because we let the marketplace work. And oftentimes,
when we interfere with it, we get adverse results. But I think the
flexibility, the dynamism, the entrepreneurial spirit that drives much of the
American economy is because in fact we do have a free market in most goods.
I guess we found that Democrats and Republicans both say exactly what you
say. But then the equation comes up to the concept of just and reasonable
rates, which is why there is a Federal Energy Regulatory Commission (FERC). And there
is where the disagreements seem to be. Is there a limit to how much people
should have to pay for electricity, for instance?

What we want to do is make sure that there are adequate supplies of energy
available at the lowest possible cost. Our economy is built on plentiful
supplies of cheap energy. Then the question is, how do you get there? And if
you believe in a market approach, you're most likely to get people to invest in
whatever commodity it is you want to produce--in this case, energy. ...
Generally the view has been in recent years--and I think it's a correct
one--that having a market approach will attract the investment that's needed in
order to produce enough; the law of supply and demand takes over, and that's
how you get reasonable prices. The price has shot up in California, for
example, because there has been no significant increase in supply in California
for about 10 years, although there's been a 24 percent increase in the demand
for electricity. So the key to reasonable prices, long term, is supply.
But should there be still a regulatory commission that can set what a just
and reasonable price would be? Or do you want to phase that out?

My general view has been that we want to move in the direction of deregulation,
and a lot of states now are moving in that direction and have done that. FERC
has responsibilities. They're an independent agency. They do have authority
to move in and set wholesale rates in certain areas and under certain
conditions. ... They've got a job to do.
So there still is a role for the federal government to intervene in the
market place and ...

I think it ought to be minimized to the maximum extent possible.
You know why I'm bringing it up. It's not just California; it's that
electricity rates have been going up nationally. They're going up in Wyoming,
your home state, maybe 50 percent this summer, as I understand. Natural gas
rates, for instance in Wyoming were up 150 percent this past winter.

But why? ... Because we've had rapidly increasing demand for gas, and supply
hasn't kept pace. Gas used to sell for a buck seventy-five or a buck
eighty-five per thousand cubic feet, and now we've got $5, $6, $7. ... It's
lower than that now, but it's still much higher than it's ever been on a
sustained basis. Part of it is because moving forward, for example, with our
expectations and future demand for electric power. Most of that capacity is
expected to be fueled by gas.

At the same time, we have restricted the areas in which we look and produce
gas. We don't look off the California coast, because we don't want to do any
offshore activity there. We don't look off the East Coast, because we don't
want to do any activity there. Florida is pretty much off-limits. About all
we're developing at present offshore is in the Gulf of Mexico.

Onshore, we've put vast tracts of the U.S. off-limits as well with respect to
natural gas or oil development. Some of those decisions we might agree on. I
don't think it should all be open to development. But the fact is that we made
it increasingly difficult to develop those resources, for all kinds of reasons.
And as we've done that and increased the demand for gas, the only response
that's available is to see the prices go up.
One of my colleagues at the New York Times wrote ... that in the
1970s, the energy crisis enemy was Saddam Hussein and OPEC. In this
administration, the energy crisis is the greens.

The fact of the matter is that you saw in the 1970s a good example of how
not to deal with the problem of prices. We had price controls imposed
in 1971. They ended up controlling domestic oil production. They couldn't
control imported oil. It put the price ceiling on imported oil, and other
people simply wouldn't sell it to us.

But so what happened as a result of having price controls on domestic oil
production, but not on imports, was that a lot of companies decided that it was
clearly much more profitable to import rather than invest here at home. So we
had a fairly dramatic shift in terms of reducing the amount of oil we produced
here in the United States because of price controls in the 1970s, with a
significant increase in our imports from overseas.

Weird things happened in the marketplace--oftentimes, unanticipated--when you
do interfere. So you have to be very careful before you step in and try to
solve your energy problem with price controls. It almost never works. ...
What do you say to people at home, elderly people, who see their heating
bill go up in Wyoming 150 percent in the winter and they're on fixed incomes?
Or to people who are going to see their electricity rates go through the
ceiling in New York City and obviously in California and in New England and
around the country? Do you say, "Grin and bear it?"

No, what I say to them is, "Look, this is a long-term problem. We didn't get
here overnight. This isn't something that just happened." The fact is, for
example, lots of times if we run into electricity problems as New York might
this summer, it's because of an inadequate transmission grid, or because of an
inadequate generating capacity. Or if we're talking about home heating oil,
it's because we didn't build any new refineries in this country in over 20
years. We have to address these issues on a long-term basis if we want a real
solution.

The fact is that the long-term solution to our energy problems, whether we're
talking about petroleum or petroleum products or we're talking about
electricity, is making sure that we have adequate supplies out there. The
policies that we're interested in pursuing specifically are targeted on doing
exactly that. So [we have] a lot of sympathy for the short-term problem. But if in the
short term you impose a solution that doesn't increase supply or reduce demand,
then we're not solving the problem. ...
You obviously know a lot about price controls because you wound up in the
Nixon administration.

I was. In the 1971-1972 time frame, I was the assistant director of the
Cost of Living Council. I had 3,000 IRS agents working for me, trying to
enforce wage-price controls. It was a disaster. It doesn't work.
But in the past--in the system that you grew up with, with regulated
utilities that we all grew up with--there was rarely a capacity problem. In
fact, if anything, the electricity was looked at something like water or
oxygen. It was a right for us to have it, and capacity just in California was
120 percent. So why are we going through this experiment, and why did you
change the parameters here, when we were doing fine?

Over the years, the lesson has been that moving in the direction of freer
markets and less government regulation leads to greater efficiencies, more
effective and productive enterprises to greater competition, so that the
consumer benefits. We've done that in the telephone business, for example, in
telecommunications ... in the airline business. So you get more product
available at a lower cost for the consumer, whatever you're talking about.
Clearly the effort's been made to do the same thing in the electric utility
industry.
But it's not working.

But I think it is working in a lot of places.
Where?

Pennsylvania, for example, is a state that has a good track record and is
generally viewed as having done a pretty good job in this area. Texas has a
lot of excess capacity. ... They've been making the transition over time. So
the problem you had in California was caused by a combination of things--an
unwise regulatory scheme, because they didn't really deregulate. What they did
was they left price caps on the retail level. They forced the utilities to
sell off their generating capacity, and required them to go purchase on the
spot market. At the time, spot prices were pretty low, and then they had
increased demand but no increased supply. So their surplus capacity fell until
the point where the prices took off. Now they're trapped from unwise
regulatory schemes, plus not having addressed the supply side of the issue.
They've obviously created major problems for themselves and bankrupted PG&E
in the process.
Two days ago, I interviewed the governor in California. ... He gave exactly
the same description of deregulation in California and agreed with [Enron CEO]
Jeff Skilling on deregulation. So his question is, "OK, bad marketplace.
Everyone voted in favor of this law in California. They gave up control over
wholesale prices by deregulating." So he's saying, "Let's have a time out in
this marketplace until we can readjust the rules. Give us a decent price cap
on wholesale rates while we figure out what to do."

FERC clearly has authority in that area, and they moved to put in what they
call a temporary price. ... I wish FERC well. I hope they're successful. I
must admit I'm a bit of a skeptic as to whether or not it's going to work, but
we're doing everything we can to help in California on a short-term basis.
There's not a lot you can do. You can't manufacture kilowatts in the West Wing
of the White House. The president has issued instructions to federal
facilities and installations to cut back on their power use. The other kinds
of requests we've received from the governor since we've been here we've tried
to honor, too. But California got into trouble a long time before we arrived.
They are going to have a tough summer. ...

Editor's note: Frontline conducted an additional interview with Vice
President Dick Cheney on May 17, 2001, a few days after the presidential task
force on energy, which Cheney chairs, released its energy policy
recommendations.

The question is: what is a just and reasonable rate for electricity? And is
it fair to charge $2,000 a megawatt-hour, which is what has happened recently
in California?

From the standpoint of national policy, I don't think we should be spending a
lot of time getting into what one particular transaction might be. What we
need to focus on is a broader question--making sure we have adequate supplies
of electricity at an affordable price, and the best solution to that kind of
price spike that occurs from time to time is an adequate supply.
But, Mr. Vice President, it's not from time to time. In California right
now, those prices are very high almost all the time.

Sure, but FERC has the authority to go in, make a determination on what
they believe are fair and reasonable and justifiable prices, and order rebates.
They've done some of that in California. They've ordered about $125 million
worth of rebates based on their review earlier this year. So that's the proper
role. ...
You've recently issued your [energy] strategy. Consumer groups say to us,
"Who are the largest campaign contributors in Washington in the last election
cycle? Enron and Southern Corporation. What does the national strategy have?
For Enron, it has eminent domain and transmission lines. For Southern, it has
nuclear and coal. They're getting what they wanted and what they paid for.
What are consumer groups getting?"... Have you met with any leaders of any
consumer groups?

That's a silly charge. When people don't want to engage in the substance
of the debate, they come after and criticize process. Or they criticize on the
basis so-and-so contributed to such-and-such a campaign, and therefore try to
discredit the recommendations based on that. But that's a sign, in my book,
that somebody's really not seriously interested in the issue.

We're trying to deal with the issue. It's the kind of thing that I think has
spoiled the tone in Washington for so long, and made the American people as
unhappy as they are with what goes on here. What they'd like to have is a good
solid debate on the merits of the policy. If you look at the policy overall,
it's a very balanced policy. There's a lot of time spent on conservation, a
lot of time spent on energy efficiency and a lot of time spent on taking care
of the environment. In fact, most of the financial incentives that are in the
package are for those things, not for producers of energy.
But the environment, for example. We're told by people at [the U.S.
Department of Energy] that, in a sense, they were scrambling for conservation
and environment proposals to put in the strategy ever since the backlash from
your previous speech.

Go look at the study. ... The guts of the study and the recommendations were
laid out before I went to Toronto, and they did not change after I had been to
Toronto. ... The study's got over 100 recommendations in it. There are more of
them in there dealing with conservation and dealing with energy efficiency than
with increased supplies.
Did you did meet with executives of utility companies?

I don't know. ... I spoke to a few groups. I may have met with them. Most of
the meetings with outside groups were done by the staff.
But you did meet with [Enron chairman] Ken Lay.

Ken's been a friend. I once was involved doing a baseball stadium for Ken Lay,
which didn't have anything to do with energy. This time around, when he came
in to see me, he did want to talk about energy.
And did he talk with you about who was running the FERC?

He didn't talk to me about that.
You know that he doesn't like Mr. Hebert's practices.

I have no idea. I've never discussed it with him.
So you never talked with him about replacing Mr. Hebert with [FERC
Commissioner Pat] Wood?

No.
You know that Mr. Wood is a favorite of Mr. Lay's.

I know that Mr. Wood is an eminently qualified man with a lot of experience
in Texas to take on this job, and he's been appointed by the president to do
the job.
But no one's ever talked to you about who is going to serve?

Do you want to talk about the substance of the policy?
I want to talk about the substance of the policy and also ...

... What you're focused on here are things that somehow are impugning the
qualities or the characteristic of Mr. Wood. He's a very able, talented man,
and he'll do a great job once he gets on FERC.
In fairness, what I'm trying to do is reflect some of the other opinions,
because we do have yours from last time about what the overall policy is, and
we will present that as well. I'm trying to deal with the feeling that I
raised last time that the administration ... represents the energy industry,
basically.

That's hogwash.
It's hogwash?

Look at the report.
The people at the Consumer Federation of America say to us, "If they want to
build 1,300 plants, why don't they get rid of 50 of those by having stricter
air conditioning controls so that we have more efficient air
conditioning?"

There will [be] probably new controls on air conditioning. But the estimate of
1,300 new plants is based on work done by the Department of Energy--career
bureaucrats, not political appointees--[which says] that, after you take into
account expected conservation and increased efficiency in the years ahead,
you're still going to need additional supply.

Part of the problem we've had in years past is because exactly that tone of
debate and those charges don't do anything with substance, but just try to
throw up a smokescreen and generate controversy, so we end up not having to
address these issues. The Clinton administration never addressed them, because
they're too tough. They're tough issues to deal with. ... California has been
very successful on the conservation front. They've got the second lowest per
capita consumption of energy in the country, and they're having rolling
blackouts because they didn't build additional supplies.
When they deregulated in California, they had 120 percent of capacity
online--that was under regulation. Everybody disliked that, because it meant
you had to build, and basically utilities became construction companies.
What's the incentive, then, on the short term, for a generator to build unless
prices spike and you have a situation like California?

There were a lot of places in the country where we've gone through regulatory
reform, and we've gotten significant additional capacity at the same time.
What happened in California was there were a lot of requirements in terms of
the regulatory scheme that were fundamentally flawed. ...
Let's assume we agree that all these things happened. You're now in a
crisis in California. You have more rolling blackouts predicted this summer
than we thought before. You have the Northwest in crisis in terms of its
prices and its availability for electricity, and you're having a ripple effect
for the economy of all of this. I don't hear you saying, "Time out. We'll put
a cap on prices for a while. We'll do various things in California so that
they can reorganize themselves." ...

If you're going to have a solution to the problem, you have to go back and
figure out what went wrong, and correct it. ... Our responsibilities as a
national government is to try to put into place a policy, so this won't happen
two or three or four years down the road. You talk about price caps--right now
the FERC has the authority to go in, if they decide that in fact it's
justified, and take action to force rebates by the suppliers if they feel those
prices can't be justified. That's the way it ought to be handled. It
shouldn't be on the basis that we ought to come in now and impose some kind of
new price control.
But until the FERC recently said that there's $125 million of possible
rebates, ... they had asked for $500 in rebates in the last few years. That was
it.

Yes, by the Clinton administrator. When we came to town, the FERC's been more
active and more aggressive.
When people see that the companies are making 500 percent profit last year,
the generators, when you have $2000 a megawatt-hour prices and prices almost
that high constantly, couldn't it be manipulation? Couldn't there be some kind
of cartel like behavior going on?

No.
You discount that completely?

Remember, my problem is I'm not in a position, nor should I spend a lot of time
worrying about individual specific examples of transactions and what goes on in
those transactions. There are other people--the state utility commission, the
government of California, the FERC--that have authority to deal with those
kinds of issues to the extent their problems are. ... They've got to solve
those problems. They've got to deal with them. I'm confident they're on their
way now to try to do that. But to suggest that somehow we ought to be spending
our time trying to intervene in individual transactions out there, I don't
think that's the proper role for our energy [task force]...
The Federal Power Act, just and reasonable rates, and the recognition by the
federal government 65 years ago that it should have the ability to intervene in
these markets because electricity is different. ... What I hear from people
around the country is, why did we change the system?

What you're getting into is a whole argument here of whether or not we ought to
have a regulated or unregulated utility business. And the decision has been
made in numerous places around the country that we want to go to competition,
and that competition will in fact produce more supply and will produce more
investment in developing these capabilities; will produce more competition from
which the consumer will benefit, which in fact has happened a great many places
around the country. [In] California, it didn't happen, because they blew it.
Now they've got to clean it up and they've got to fix it. ...
And everybody in California, of every political persuasion, in 1996 voted in
favor of this flawed policy. So it is a bipartisan responsibility.

Because there was widespread support for it doesn't mean it was sound policy.
...
We go to Pennsylvania and we do an analysis in Pennsylvania. Retail rates
appear to be low in Pennsylvania, because the legislature mandated them 10
percent lower with a price cap.

Also, they built adequate capacity, so they haven't got any problem. ... We've
got significant excess capacity in Texas, with the result that you haven't had
these kind of price spikes. In the end, a policy that doesn't reduce demand or
increase supply is a Band-Aid. It doesn't solve the problem.
Are you saying that you have to have excess capacity for a real competitive
market to work?

The law of supply and demand works. Markets work. That's the backbone of our
economy. The judgment's been made in many places around the country now over
the last several years that we're going to let markets work in this area, just
as we've done in telecommunications, for example. ...
But you really don't want to address the issue that we keep hearing from,
not just California, but from the consumer organizations and others that the
price of electricity is going way beyond reasonable cost?

The problem in terms of electricity is that, to have adequate supplies of
electricity, then you won't have a pricing problem. The same thing is true of
gasoline. Let's put in place the policies that'll do it. One of the reasons
we've got problems today is because a lot of these same organizations were
opposed to anybody trying to do anything about increasing supply in the past.
...
In gasoline, you have a strategic petroleum reserve, and you can release
that to affect prices, right?

First of all, the strategic petroleum reserve is set up for national
emergencies, for example, a cutoff in the flow of oil--a real crisis.
Secondly, the big problem in gasoline today isn't crude. It's the lack of
refinery capacity. We haven't built any new refineries in this country in over
20 years.
When you read that the financial markets say that they are funding and they
are responding to these price signals and there is no need for 1,300 plants ...
Are they wrong?

There are, in fact, a lot of places in the country where we're getting a good
market response, where you've got reasonably sound governmental policies. But
when you get into situations like California, you do have a problem, and I
think the energy problem is there for anybody who wants to look for it. You
can't sweep it under the rug. ...
So if I'm paying very high prices today?

Go back and talk to whoever it is that blocked the development of additional
supplies in the past, because they're the ones that are responsible for your
high prices.
And it will be a year or two years, and eventually there will be enough
supply on and this problem will go away?

[If] our policies are adopted, you're going to in fact see a significant
increase in the overall supply. You'll see stable prices over the long term,
and that's in everybody's interest.
When will that happen?

It'll happen, I think, gradually over the next few months, and over the
next few years, we'll see it happen. It's already happening in a lot of places
in the country. But in the areas where it's a problem, they need to do a
better job. So if you're concerned about your prices today, then go look at the
flawed policies of the past. Support our energy policy, and you'll have stable
prices and plentiful supplies.